NATIONAL AIRPORTS RENT POLICY REVIEW

QUESTIONS AND ANSWERS FOR AN ANNOUNCEMENT ON THE RENT POLICY REVIEW

Key Questions

Q1 What is the new airport rent policy?

A1 The new policy is that the government is entitled to a fair rent that takes into consideration the viability and competitiveness of the air industry while ensuring equity among NAS airport authorities with respect to how much they pay.

Specifically, the proposed formula should result in about $5 billion in rent to the government over the remaining life of airport leases of some 50 years, this is $8 billion less than the $13 billion that the existing deals will generate.

Q2 Who will benefit the most from the reduction in rent?

A2 The entire airports system will benefit from the reduction of this cost centre. All airport authorities will benefit and the largest authorities have pledged to pass on reductions to the airlines.

Q3 Are all airport authorities benefiting to the same degree?

A3 No, the rent policy review determined that there are numerous inequities in the rent formulae among airport authorities. These inequities will be removed through a four-year transition period at the end of which there will be a simple, single formula that will determine rent for all airports on an equitable basis. As a result of this approach, all authorities will be treated fairly and consistently in the rent that they pay.

Q4 Will the new formula be sensitive to market fluctuations?

A4 One of the advantages of using a gross revenue formula is that rent will fluctuate with the economy, and will provide relief to the airports when needed. Not only will the formula respond to changes in the aeronautical industry, it will also respond to market changes affecting the remaining, non-aeronautical side of the business as well. This is important to airports as approximately 40 percent of their revenue is generated from non-aeronautical sources (e.g., retail, parking, real estate, etc.).

Q5 Will these savings lead to reductions in airfares?

A5 Canada’s major airport authorities have committed to ensuring that a “significant portion” of the rent savings will be passed on to carriers and passengers through adjustments to aeronautical fees. As a result of the transition and the fact that different airports are starting from different situations, the benefits to passengers may be expected to vary over time and from airport to airport.

Since the government does not regulate airport prices, it is the responsibility of each airport authority to determine how to pass on the savings from the new rent formula. Airport authorities are encouraged to consult with their airline consultative committees and will be required to inform Transport Canada of how they apply the rent savings.

The Review

Q6 Why did you undertake the review of airport rents?

A6 The review was intended as a response to: the department’s own analysis, views expressed by Parliamentary Committees, concerns raised by air sector stakeholders, and the Office of the Auditor General.

Q7 What were the objectives of the review?

A7 The key objective of the rent review was to determine a fair rent. The government conducted the review to strike a balance between the impact of rising rents on the air sector and a fair return to taxpayers over the life of the leases. Other principles underpinning the review included: equity, consistency and responsiveness to market conditions.